Rwanda has signed a host agreement with the Secretariat of the African Continental Free Trade Area (AfCFTA) and the Afreximbank for the $10 billion Adjustment Fund aimed at accelerating the implementation of intra-African trade.
The fund is expected to serve as a vehicle for mobilizing funds, develop and operate a compensation facility aimed at mitigating the short-term impact of tariff revenue losses of State Parties.
The free trade area prescribes the elimination of tariffs on 90 percent in five years (7 years for Least Developed Countries) and 97 percent of tariff in 10 years (13 years for LCDs).
It is estimated that the requirement for uninterrupted implementation of the AfCFTA and to eliminate the adjustment cost is at $10 billion over the next six to 10 years.
The recently launched Adjustment Fund consists of a Base Fund, a General Fund and a Credit Fund. Afreximbank has already committed $1 billion towards the fund.
The Base Fund will consist of contributions from state parties, grants and technical assistance funds to address tariff revenue losses as tariffs are progressively eliminated. It will be managed by the Secretariat.
The General Fund will mobilise concessional funding, while the Credit Fund will mobilise commercial funding to support both the public and private sectors, enabling them to adjust and take advantage of the opportunities created by the AfCFTA.
The Secretariat and Afreximbank also signed an agreement to create a joint venture company that will manage the credit fund and the general fund, based in Kigali.
Wamkele Mene, Secretary General of the AfCFTA, noted that the fund should not be viewed solely as a tool for overcoming short-term revenue losses of state parties, rather, "it is a crucial initiative aimed at developing the capabilities of the private sector to produce value-added goods and services that can be traded competitively throughout the AfCFTA market."
He noted that it will accelerate momentum and make effective participation in creation of meaningful trade under preferences of the AfCFTA.
"The success of the free trade area and its objectives depends on the ability of the private sector to take full advantage of opportunities and market access under the agreement."
Representing Rwanda, Foreign Affairs Minister, Vincent Biruta, noted that the agreement is a testament to joint commitment to ensure that AfCFTA member states and private sector are supported to effectively participate in the trading environment established under the AfCFTA.
"Rwanda strongly aligns with this initiative to ensure that all countries can benefit from opportunities offered by the AfCFTA and the Adjustment Fund that contribute to inclusive and sustainable economic growth across the continent."
Kanayo Awani, Executive Vice President of the Intra-African Trade Bank, Afreximbank, highlighted that the fund will provide direct financing to governments, public and private enterprises, to foster sectoral initiatives as needed.
"It will support enhancement of competitiveness of African businesses operating in established trading environments."
The criteria of eligibility to access the funds will be announced in June after deliberations from a ministerial meeting that will convene in Kigali.
In that line, Awani said that interest rates on credits given to the private sector will vary case by case.
The landmark free trade agreement, signed in Kigali in March 2018, envisions a continental market of 1.2 billion people, with a combined Gross Domestic Product of more than $3.4 trillion.